Forum Post: Maximum Markup
Posted 11 years ago on Oct. 13, 2012, 4:31 p.m. EST by richardkentgates
(3269)
This content is user submitted and not an official statement
The healthcare law provides an important and exportable model for reshaping the economy. Health insurance companies may only keep 20% of revenue as profit. There are many things that a model society requires from each of us, if we don't have certain things, there can be no equality. Notice that the 20% cap wasn't applied to services but an actual product. The complexity in deciding market value for services makes profit caps for services unrealistic, but I can see no reason this shouldn't be applied to retail. A 20% markup cap on retail could bring the affordability of needed items into focus, such as communications, clothing, food, furniture, ect. Also, applying a profit cap to retail could singlehandedly restrict inflation and put a jimmy hat on any action the fed takes.
What's your cost on your web sites? You host them at, what, $9/month, for all of them combined?
So then should the maximum markup for your web sites be limited by law to $30.60 per year?
I'm providing a leased application with free updates in conjunction with hosting. If you just want hosting there are others out there for that. I guess you noticed my stuff taking shape on got all offended?
No I've been way too busy to worry about it but congratulations.
But unless you can show $416.67 in expenses per web site per year, you're violating the law that you're proposing.
I don't have a markup because I am the producer of the product, for one. For two, I'm selling a service (SAAS) not reselling a manufactured item. Web dev does not fall under retail, but then you know that, you just want to argue. Services mean hands on work, where retail is simply the resale of someone else's work.
No, I didn't realize that you were exempting all services from your proposed markup limits., since health care is a service also. Why would health care be limited but not managed web services?
When you were talking above with TrevorMnemonic, you were very into the idea of limiting interest on loans to 10%. That isn't retail either, just like health care services. It seems that you only want to limit sectors that don't apply to you.
It's delicate to balance anti-capitalism with entrepreneurship.
I want to limit the profit margin of product resale. Insurance, retail, loans, are the resale of someone else's productivity. Hospitals and doctors provide healthcare, not insurers. Manufacturers produce clothing, not walmart. Depositors provide the base reserve for lending, not the banks. Yes, as the person directly producing something, I do not fall into the category of resale. I have a hard time believing this is over your head. I think it closer to the truth to say you want to just argue for the sake of arguing, regardless if you have a valid point as I have made the distinction clear throughout this thread and even in the OP.
You don't operate net-connected web servers. You're reselling hosting and bandwidth and calling it a "product", just like insurance companies refer to what they sell as packaged products.
"Florida Blue" from Blue Cross Blue Shield is a "product" that you buy. Part of that product is health care services, and part of it is a lot of proprietary software and graphic design and support infrastructure. Just like with your product.
Blue cross doesn't offer medical services, they offer insurance for medical services. If you really want to take on the argument for insurance companies, we could always dig wayyyy deeper into all of the ways they make money and how much of that is from other peoples' money and/or labor, but I'm sure you'll stop and switch gears before making a complete ass of yourself.
Secondly, I am providing (let me spell it out for you) Software As A Service. That means I am doing the work, not reselling someone else's work. But since you make such a compelling argument, I look forward to seeing your LinkedIn modified to reflect your entry into the world of retail.
SAAS
You're fully aware already that I also provide a SaaS. And my SaaS, like yours, is a software layer on top of services that we both resell. I resell Amazon AWS. You probably resell shared hosting from a more traditional web hosting company. Dropbox resells S3. Heroku resells EC2. Sorry to point this out, but you're a reseller.
If you are a law man, does using a lawn mower mean you're reselling the lawn mower therefore you Qualify as a retailer? Or the use of gas in your equipment so you're a reseller of gas? Your argument is absurd and you know it.
Your product is simply web hosting services, resold at a markup. With a software layer that is so thin that you brag about how thin it is. If I resell web hosting services and I add a WordPress blog on top, I'm still just reselling web hosting services.
If you're running those sites out of a Dreamhost account, for example, then your cost is about $9/month, or $108/year. You charge your customers $500/year. So your markup is $392, which is a 363% markup.
That's if you only have one customer. If you have ten customers in one Dreamhost account, then your markup is $4,892. That's a 4,530% markup. Your goal was 500 customers? Correct? If you manage to power 500 sites from one Dreamhost account (possible if they're small, local sites) then you're charging a 231,381% markup.
Thats a lot of numbers and assertions but it isn't any closer to the truth than it was 5 comments ago. Next time you call a plumber, remind him that he doesn't provide a service, but merely resells plumbing materials. Your continued downplaying of my skills and services involved in my offering sounds a bit like resentment. You out of work or something? I stand by my opinion that retailers need a 20% markup cap and you've made no economic or moral argument against it, you somehow think degrading me is a good debate tactic.
Out of work?!? Downplaying? I spent weeks trying to hire you.
When I hire a plumber, I get charged for two different things: parts and labor.
I use a value-added reseller company called Engine Yard to power mission-critical, production web sites. They're a PaaS. Engine Yard resells Amazon AWS at a 20% markup, with a software layer on top. They also provide premium service at an additional fee that ranges from about $160/mo to about $450/mo per server, depending on the size of the server. They package all of that as a "product" called the Engine Yard Cloud. The main difference between the way that they price their product and the way that you price your product is that you conceal the portion of your product that you're reselling from your hosting provider. That allows you to push up your markup to amazingly high levels.
You haven't convinced me that there is a clear distinction between reselling web hosting services like you and Engine Yard both do, and reselling health care services like a health insurance company does. You're both value-added resellers.
I don't understand why you aren't using rackspace. I'm not hiding anything. I don't announce that I'm using register.com because I will be moving to another server once load requires it. I will probably set up my own at the house as I have a buddy who deals in gaming machines and servers. The software I made and will maintenance into the future is my product. Hosting is simply a required expenditure on my part that is offered free with the product and the CMS is not geared toward server access but relying entirely on the CMS. My pricing is based on the amount of time I estimate will be spent managing accounts and progressing with the software, which will grow as does any long term software offering.
I use Engine Yard specifically because the premium support staff there has deep knowledge of Rails that Rackspace can't provide with their equivalent cloud product. They're not cheap, but they're worth it when uptime is more important than saving money. Keeping a cluster running with dozens of web servers and multiple replicating database servers and multiple utility servers is a lot more involved than running a smaller site. Using DevOps and outsourcing web operations to Engine Yard saves tens or hundreds of thousands of dollars per year that would otherwise have been budgeted toward web operations personnel. And I use a cloud product in the first place mainly because it shifts capital expenses to operating expenses. And so that I can add dozens of new web servers to the production cluster in minutes when we're hit with unexpected traffic spikes.
We're at another one of those dead ends where we'll never agree with each other so we might as well just stop talking about it. It's obvious to me that you're a value-added reseller for web hosting services. You consider yourself a SaaS, and that's not necessarily mutually exclusive with value-added web hosting resale. I don't understand why you shouldn't be bound by the same 20% markup rules that you want retailers held to, whereas you see a clear distinction that would make you exempt. We'll never agree, so I'm not going to worry about it. I have a feeling that a telecommunications reseller would have trouble understand why your proposed restrictions would apply to him and not to you, but it's kind of moot since the idea isn't very realistic in the first place.
I've noticed a trend of topics that float to the bottom happening to be threads with specific action that could catch hold and create change. Simply yet doable ideas. Just one more sign that the forum regulars are actually industry insiders trolling the forum for populist trends and not actual supporters looking to support or even with any interest in real change. As long as it's meaningless blather, it always gets an invite to hold on to the top of the forum. Scum bags, your day is coming.
I've noticed a big change in the last couple of days. Serious issues get buried very quickly. I know it's election time, but that's all about divide and conquer. Guess the ploy still works on most people.
On the 20% plan, our fed gov recently imposed a "carbon tax" in an effort to combat climate change. Retailers across the board used this as an excuse to jack up their profit margins overnight. Retail bakery chain Brumby's (who I don't buy off because their prices were outrageous already) got busted for artificially inflating their prices on all "cooked" goods.
We have a duopoly in the supermarket chains, who also now own more gas stations, bottle shops and hotels, as well as more poker machines (slots) than anybody else. The fuel price fluctuates every week, with prices jacking up for long weekends. The gov introduced a "service" called "fuel watch". That's all they do tho, is just watch the price go up and down, because they profit greatly from the sale of gas, and don't really care what the bowser price is.
It seems, Richard, that the whole system is geared to keep the poor down, and wealthy rich.
Yeah the shills/quislings/trolls/corpoRATist's/sellouts are trying to pick-up steam as we head towards the election.
I don't think many things in retail are really marked up more than 20%. There is just way too much competition.
For what it is worth, WalMart, which is obviously a huge money maker, only had a net profit margin of 3.5% last year. A 20% markup cap would not change the prices we pay for nearly anything because competition already holds it well below 20%.
If anything it shows how profitable insurance companies are at 20%. If you lowered that you would make health care much more affordable and also make them compete against each other more which would hopefully drive the costs down even more.
Completely wrong. I agree with you a lot but reality is always a bucket of cold water to the face.
http://www.wisebread.com/cheat-sheet-retail-markup-on-common-items
Why do WalMart and most grocery stores have such low profit margins then?
Payout to shareholders just rose 5.7%. I would look to that for your answer . It seems money for nothing and your checks for free is the word of the day.
I am not talking about what they do with their profits. Their actual profit margins are thin. Well under the 20% your propose.
Not sure where you get your info but it's highly inaccurate.
nytimes.com
That is for Saks, it says WalMarts was 24.3%
Either way, that is the gross margin, the net margin is what the investors actually care about because it takes into account things like operating expenses and taxes. And that was 3.5% according to their SEC 10-K.
So if you capped markup at 20%, the investors would actually lose money unless they found a way to A) pay even less to their suppliers or B)reduce operating expenses, the biggest of which is labor.
Sacks is still a retailer and walmart is still making 24.3 in the middle of an economic decline.
They aren't making 24.3. That is the markup on the cost of goods. The gross profit. The net profit - what is actually left after their expenses - is 3.5%.
Retail has one of the lowest profit margins of any kind of business, which is why it's misguided to try to limit the profits of retailers. Their profit margins are already so low that they would go out of business if you legislated them even lower. The market already accomplishes what Richard wants to accomplish through legislation. Retailers like Costco who want to limit their markup (Costco limits their markup to 15%) can only do so by doing much higher volume. Costco's net margin is only 1.7%. Requiring low-volume retailers to limit their markup to only 20% would put them out of business. Which would end up making good more expensive for consumers, not less.
Grocery store mark up is misleading because the turnover can be so fast depending on the item. If they only made 1% on an item, but sold out every day and restocked, they would make 365% gross profit on the initial investment.
Nevertheless competition has held that margin in check.
Huh? I guess I'm showing my age, but that sounds like some kind of new math. Can you explain your statement? 1% profit on a $1 item is 1 penny. How can you more than triple your initial investment on that??
By quick turnover. A dollar invested in a pack of hot dog buns makes one penny the first day. Reinvest in another pack of hot dog buns the next day and make another penny. After 365 days the gross profit is 365%.
By golly, you are correct.
Interesting. A 20% cap could potentially reduce outsourcing as well.
We also need a cap on debt to not be allowed to exceed 110% of the initial loan. You borrow 10,000 dollars for college... You pay no more than 11,000 back. Interest rate caps as well. 29.9% interests rates put poor and lower income people in an endless loophole of debt that they can't payoff. Putting a cap at 10% would give people a chance to pay off their debts instead of just accruing interest that never let them pay off debt.
That makes a lot of sense. I think this thread could lead to a broader approach to caps, redefining usury, and identifying price gouging. We have all of these terms in our legal language but they've all been swept under the rug and long forgotten. A little dusting off?